Income trusts deciding to internalize management, meaning executives are directly employed by the trust rather than being part of a management company hired to oversee operations, has been a significant trend so far this year.
The direct employment eliminates acquisition and disposition fees paid to the management companies, a sore point for some analysts and buyers. Critics said the structure provided incentive for managers to do deals regardless of their benefits to investors.
Five trusts have already switched and Enerplus Resources Fund Group, NCE Petrofund and Ultima Energy are the latest members of the growing club. Ultima said the restructuring will cost $5.3 million; NCE estimated its buyout at $29 million; and Enerplus pegged the value of its transaction at $48.9 million. However, owed fees plus retention payments to employees will raise Enerplus’s total bill to $56.2 million.
Sunfire Energy’s stock jumped to a 52-week high after the firm announced hiring brokerage Peters & Co. to help find ways to enhance shareholder value, a process that usually results in the sale of the company.
The increase shows investors believe there are buyers willing to pay premiums for natural gas-focused firms. According to the most recent data available, Sunfire derived more than 90 per cent of its daily production from gas.
With gas recently trading at twice its year-ago value, it’s not a bad time for Sunfire to put itself on the block.
Any buyer for Sunfire will likely come from the income trust sector, where players are still able to raise funds for acquisitions.
Nycan Energy, a gas-focused firm producing about 1,400 barrels of oil equivalent (boe) per day, was purchased for almost $45 million by APF Energy Trust. As part of the deal, APF arranged a bought-deal financing to raise at least $50 million. If investor demand is high, the financing could raise as much as $60 million.
The Nycan deal illustrates the hot market for gas properties, since supplies are expected to stay tight for a couple of years, translating into sustained high prices. APF paid $32,000 per flowing boe, compared with some heavy-oil assets in Saskatchewan recently selling for slightly less than $17,000.
A discount applied to heavy oil, since it produces less valuable refining products than a barrel of light oil, means such properties always fall to the lower end of the price band. But the huge gap makes such counter- cyclical acquisitions a good way to invest unexpectedly strong cash flows.
Current commodity prices mean heavy crude properties are yielding recycle ratios (a measure of capital efficiency) of three or four, performance good enough to break your arm patting yourself on the back.
“It’s a licence to print money and you’re adding true value for investors,” Brian Prokop, analyst with Peters & Co., said when reviewing current conditions for oil acquisitions.
But investors are crazy for gas-focused companies since the fundamentals are easier to predict than the long-term effects of a possible U.S. war against Iraq. Oil-oriented producers such as Baytex Energy and Nexen have little choice but to hunker down and hope the pendulum eventually swings back in their favour.
It didn’t take long for Hank Swartout, chief executive of Precision Drilling, to make his presence felt at a struggling unit.
Determination threaded Swartout’s voice in a recent conference call with analysts when he vowed to improve performance in Precision’s technology services group, which lost money in all four quarters of 2002.
Larry Comeau, 49, abruptly resigned as head of TSG. A former executive with a service firm taken over by Precision a couple of years ago, Comeau was previously considered a key member of management.
Meanwhile, John King has been appointed as senior vice-president of TSG. He has 15 years in the oilfield service industry and has most recently been active as a builder and an acquirer of oilfield service companies.
The financial results of TSG are going to be carefully scrutinized by analysts, investors and rival service firms over the next couple of quarters to see whether Swartout can deliver on his promise.
Big equipment dealers should give a prayer of thanks every day for the boom in oilsands that is helping keep their lights on and utility bills paid.
Finning International, for example, signed a deal worth more than $30 million to sell six huge mining trucks to Syncrude Canada. With other sectors such as forestry hurting badly, Alberta’s unconventional oil industry has been a major source of business for these service firms.
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| File photo by Mike Sturk, Business Edge |
| Eric Newell |
Eric Newell, chief executive of Syncrude Canada, was named the 2003 Canadian Energy Person of the Year by the Energy Council of Canada.
He was a leading proponent for royalty changes implemented a few years ago by the provincial and federal governments that helped pave the way for the current oilsands boom. Besides his work at Syncrude, Newell was selected for his dedication to the arts, aboriginal affairs, community and education.
He becomes the third winner of the award, following James Gray in 2001 and Richard Drouin in 2002.
